Mutual Fund Expense Ratios Reach Historic Lows

In 2024, 401(k) plan participants who invested in equity mutual funds paid an average expense ratio of 0.26%, down from an already historic low of 0.28% in 2023, the Investment Company Institute found in its report, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2024.”

One decade ago, the average mutual fund expense ratio hit a nearly 20-year low—dropping 36 basis points to 0.68% in 2015 from 1.04% in 1996. Another 10 years later, the rate has dropped an additional 42 bps, surpassing the previous 10-year rate drop.

At year-end 2024, 62% of the $8.9 trillion in total 401(k) plan assets were invested in mutual funds. Of those invested in mutual funds, 61% were in equity funds.

The expense ratios for 401(k) participants have declined considerably since 2000, resulting in cost efficiencies for millions of retirement savers, according to the report. The average ratios incurred by participants fell by 50 basis points—66% of the original ratio—from a high of 0.76% in 2000. The expense ratios 401(k) participants paid for hybrid and bond mutual funds fell as well over the same time span, by 44% and 69%, respectively.

“The long-term downward trend in mutual fund fees for more than two decades is great news for investors looking to secure their financial future,” said Sarah Holden, the ICI’s senior director of retirement and investor research, in a statement. “These results highlight the care with which plan sponsors curate their investment lineups to include professionally managed, cost-effective, diversified options.”

The ICI cited several factors that contribute to the relatively low expense ratios incurred by mutual fund investors, including:

• “Competition among mutual funds and other investment products to offer shareholders service and performance;
• Plan sponsors’ decisions to cover a portion of 401(k) plan costs, allowing them to select lower-cost funds or fund share classes;
• Economies of scale, which large investors such as 401(k) plans can achieve;
• Cost- and performance-conscious decisionmaking by plan sponsors and plan participants; and
• The limited role of professional financial advisers in [the] plans.”

The average expense ratio of target-date mutual funds, a popular investment choice among DC plan participants, has also fallen consistently since 2008. The ratio fell 57% between 2008 and 2024, to 0.29% from 0.67%, according to ICI.